Eurozone business activity sluggish in March
Growth in the eurozone services sector was stronger than expected in March, but overall business activity remained sluggish, held back by weak manufacturing, according to data released on Wednesday.
IHS/Markit's final eurozone services business activity index printed at 53.3 in March, up from the flash estimate of 52.7 and February's reading of 52.8. Growth was led by Germany and Spain, while Ireland also saw a marked rise in activity.
New business volumes grew at their strongest pace in four months, with the more positive demand environment encouraging firms to again take on additional staff at a solid rate, the survey found. Germany, Ireland and Spain all recorded notable gains in employment versus February.
Meanwhile, the final composite output index for the bloc, which measures manufacturing and services activity, fell to 51.6 last month from 51.9 in February, but was above the flash estimate of 51.3.
The survey highlighted divergent trends across the two sectors, with services activity growing at its strongest rate since November 2018 but goods producers recording the biggest monthly drop in output since April 2013.
In particular, the manufacturing downturn weighed on Germany, where activity expanded at its weakest rate for nearly six years in March, while France was the worst-performing country in the euro area, as it returned to a modest contraction following slight growth in February.
Germany's composite PMI fell to a 69-month low of 51.4 in March from a flash estimate of 51.5, while the French PMI printed at 48.9 compared to a flash estimate of 48.7.
Chris Williamson, chief business economist at IHS Markit, said: "The final eurozone PMI for March confirms the sluggish end to the first quarter, with business growth ebbing to one of the most lethargic rates seen since 2014.
"Only at the turn of the year, when business was hit by headwinds such as widespread ‘yellow vest’ protests in France and an auto sector struggling with new emissions regulations, has growth been slower over the past four years. The rebound from these temporary headwinds has clearly been disappointing and is already losing momentum, led by a deepening downturn in manufacturing. The goods producing sector reports that global growth worries have intensified, meaning customers continue to pull back on spending."
Williamson said that while the services sector has managed to sustain a relatively resilient rate of growth, it has also lost momentum in recent months.
"This should come as no surprise as history tells us that robust service sector growth usually depends on a healthy manufacturing economy," he said.
Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said a composite PMI of 51.6 is not worth writing home about.
"New business growth rose only marginally in March mainly because weakness in manufacturing offset strength in services, a story that is repeated in the context of work backlogs. Existing workloads are now falling slightly thanks to a big decline in manufacturing," he said.
"That said, the divergence between weak manufacturing and robust services tells an important story of a relatively solid domestic economy in the face of a sharp slowdown in manufacturing, driven mainly by a slump in external demand."